Activity hampered by lack of infrastructure and limited access to electricity

Risk assessment

Burundi’s economy brought to its knees by political crisis

After three years of recession, the Burundian economy is expected to timidly resume growth in 2018. Nevertheless, political uncertainty and sanctions imposed by the European Union – the country’s main financial donor – are expected to continue to put pressure on activity. A shortage of fuel at a national level in 2017, triggered by the depletion of foreign exchange reserves, shows an economy grinding to a halt. Rising prices, particularly for imported goods, are strangling household consumption, on which growth primarily depends. Inflation, although expected to benefit from a slowdown in the depreciation of the national currency, is likely to remain high in 2018 and continue to erode the meagre incomes of the Burundian people. The 2017/2018 harvest years for coffee and tea, the country’s main export products (almost 48% of export income in 2016), are, admittedly, likely to be better than the previous years, but will not be sufficient to bring relief to a country whose population is among the poorest in the world (per capita GDP in 2016 was USD 325, according to the World Bank). The government’s limited resources are primarily directed towards maintaining order, with public spending providing only minimum support for growth. The still high tensions will curb any rebound in private investment, thus adding to the gloomy assessment of the Burundian economy.

In the absence of international aid, the imbalances persist

The pressure on public accounts is expected to continue in 2018. Income flows are expected to remain weak: tax income remains steady only thanks to tax levels which sap Burundian households’ purchasing power, while the collection of non-tax income, with donations cut, is expected to remain mediocre. Deprived of support from international donors, who were mainly responsible for financing infrastructure, capital spending will remain modest. Accordingly, it is current spending which will continue to put pressure on the overall balance.

The current account deficit, exacerbated by the suspension in aid from the European Union, will remain under pressure in 2018. Dependent on imports, Burundi suffers from a trade balance structurally in deficit which puts pressure on the current account deficit. In 2018, despite a probable increase in coffee and tea production, the value of exports is expected be hit by the unfavourable development in the price of these two commodities.

Under pressure from these twin deficits, the Burundian franc is set to depreciate further. Already weakened by low revenues, the dependence on international aid, and the weak export base before the political crisis, the country is all the more exposed to the risk of over-indebtedness. Financing its external debt and some of its fiscal deficit through borrowing, Burundi has seen its public debt ratios deteriorate. Domestic debt, mainly taken out with the Central Bank, is, in particular, rising very rapidly and now accounts for over 65% of the total outstanding debt, whereas it represented less than 50% at the end of 2013.

Political impasse continues

The tensions following President Pierre Nkrunziza’s decision to stand for a third term in 2015 and his re-election, in breach of the constitution, have not disappeared. Despite government denials, reports of violence – which has become “more clandestine but just as brutal”, according to a report published by the UN in 2017 – remain just as widespread. The United Nations and NGOs continue to denounce the human rights violations and the repressive system put in place by the ruling party (CNDD-FDD). Since April 2015 and the beginning of the crisis, almost half a million Burundians have fled the violence and the economic slump into which Burundi has sunk. Burundi’s withdrawal from the International Criminal Court (ICC), which became effective in October 2017, in no way affects the preliminary investigations launched by this international body. The political crisis has negated the efforts made to improve the very challenging business climate.

Burundi’s government flatly refuses to cooperate with any international partners, thus increasing the country’s isolation. The current crisis exacerbates the diplomatic tensions, including those in the Great Lakes region where porous borders, political instability and ethnic conflicts regularly wreak havoc.